How Many Bank Accounts Should You Have? Three Rules to Help You Decide

Matt Fellowes told me earlier this year that the average American has six bank accounts.   That seemed high to me, so I looked in my HelloWallet account to see how many bank accounts my wife and I had (I was expecting to find about 6, but no more than 12 for the two of us).  We had 24 accounts:  2 checking accounts, 2 savings accounts, 4 credit cards, 4 separate retirement accounts, 2 brokerage accounts, 2 education savings accounts, 3 student loans, 2 bank2insurance accounts, 1 healthcare account, 1 flexible savings account, 3 vendor specific charge cards.  My initial reaction that 6 accounts was too high immediately seemed naive.  But worse is that I didn’t know how many accounts I had and they spanned across 20 different companies.  Good grief, you’d think I was Mitt Romney with forgotten fortunes in Swiss Bank accounts, but unfortunately I was’t finding hidden riches, I was finding untended financial services products with little usage & low balances.  Bank accounts can grow like weeds, every financial institution & department store cashier seems to have an offer to ‘reward you’ for opening a new account.  And those accounts have costs – either fees, or time spent maintaining the account, or the risks of not maintaining the account.  But how many should I have?  Is six the right number?  Twelve?  

I decided to commit the time to figure out what we needed and what all these accounts were for.  That meant calling and researching each account as if I were evaluating it for the first time.  Understanding the fee structure, their full set of account offerings, penalties and incentives.  This took a lot of time, 12-15 hours.  But it was also clarifying.  I didn’t need all these accounts.  We are down to 11 now:  1 checking, 1 savings, 2 credit cards (personal & work), 1 healthcare & flexible savings, 2 retirement (1 for each employer), 1 for emergency savings, 1 education savings, 1 insurance & 1 mortgage account.  
So what’s the answer to the question ‘how many bank accounts should you have?’  The answer is probably less than you currently have.  And for every account you do have, here are three basic rules for evaluating whether or not its a keeper:
  • Fewer accounts means more money for you:  The math here is pretty simple, financial institutions want your business and they will reward you with lower fees and better interest rates if you give them more of your finances to manage.  If you split your savings accounts across two banks, you are also cutting your buying power with those banks in half.  The psychology here is less intuitive, but showsbank1 the same result.   Recent research from the University of Kansas shows that fewer accounts means you will save more.  The researcher, professor Promothesh Chatterjee, puts it this way: “individuals find spending more enjoyable than saving and are motivated to search for reasons to justify spending. In such situations, vagueness enables them to distort available information to follow desirable spending motives. And having multiple accounts provides that vagueness.”  So if yo have multiple accounts for the same purpose, consider culling them down to one.  
  • Employer sponsored accounts are better for you: And the bigger your employer, the better deal you will probably get.  Accounts we opened on our own had less favorable terms than accounts our employers offered us.  I work for a small company, my wife works for a big company.   The financial services accounts offered through my wife’s large company were better.  Companies have more purchasing power and you can benefit from their negotiations if you are fortunate enough to work for such an employer.  So if you have employer sponsored financial service – like healthcare, education savings, insurance, retirement, etc – you should consider consolidating your accounts with those providers
  • Loyalty matters: There are far too many fees and products to keep track of in financial services.  It can be exhausting  to become an informed buyer of them all.    So if there is a particular bank you like for any reason – convenience, trust, customer service, ease of use – then use them over other banks and let them continue to earn your business.  Because odds are they want to and life is too short to spend evaluating financial services products.  
If you’d like to see how many bank accounts you have, log into your HelloWallet account, click the accounts tab at the top and click the ‘by bank’ option on the left hand side.  A screen shot from a demo account is below for reference with the relevant buttons highlighted in blue.  
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